More than 80 business and community leaders attended the annual Douglas Economic Luncheon Thursday,  June. 4, at Cochise College.

Center for Economic Research Economist Robert Carriera provided a guarded but optimistic review of the Douglas economy over the next year.

The event was sponsored by the  Cochise College Center for Economic Research and participating sponsors.

Center for Economic Research Economist Robert Carriera said, “Cochise County’s retail market has been in recession since November 2007. In 2008, sales were down 6.5 percent after adjusting for inflation. In the first quarter of this year, sales were down 9.4 percent compared to the same period last year. March was the 13th consecutive month of declining sales, and sales have declined in 16 of the past 17 months. The last month that saw positive growth was February 2008, when sales were up 2.4 percent.

“Retail sales data for Douglas are not available. However, retail sales tax revenue was up 6 percent in 2008. Part of the reason was a change in the city’s tax rate. Effective Sep. 1 last year, the retail tax rate increased from 2.5 to 2.8 percent. For single items costing more than $10,000, the rate increased from 1.5 to 1.8 percent. Despite the increase, retail sales tax revenue was down 2 percent in the first quarter of 2009.

“A continued slowdown in retail sales is expected countywide and in Douglas through most of 2009. “

He said the duration and magnitude of declines over the past year suggest retail sales are at or near the bottom of the current decline.

“Eventually, we’ll begin comparing to lower levels of sales that began in late 2007, so we’ll begin to see positive growth. We can expect that to occur later this year, perhaps at the holiday shopping season.

“There’ll also be the effects of the federal economic stimulus package, as well as efforts to restore liquidity to financial markets, which should help in the short-run. Lower fuel prices and lower prices in general should also help.

Carriera said Retail sales in Douglas are impacted by shoppers from Mexico.

In recent months, the value of the peso against the dollar has declined significantly, which may explain part of the drop in retail sales tax revenue beginning in the fourth quarter of last year. In July 2008, the exchange rate was about 10 pesos to the dollar. In February this year, this fell to 15 pesos to the dollar. The peso strengthened to just over 13 pesos to the dollar in May. If the peso continues to strengthen, this should help sales in Douglas in the coming months. 

Restaurant and bar sales at the county level saw relatively strong performance in the first three quarters of 2007, but weakened in the fourth quarter and into 2008. Inflation last year—especially higher gas prices—likely impacted this sector considerably. We began to see some signs of a rebound in the fourth quarter of 2008, and for the year sales were up 0.2 percent. In the first quarter of this year, however, sales fell off again with a decline of 2 percent.

In Douglas, restaurant and bar sales were down both in 2007 and 2008, which saw declines of 2.9 and 7.7 percent, respectively. In the first quarter of this year, however, sales were up 0.4 percent.

“Restaurant and bar sales should recover at the city and county levels by mid- to late-2009. The rebound in restaurant and bar sales is likely to occur sooner than the retail recovery. That’s because it’s an easier adjustment to the household budget and doesn’t entail the risk associated with many categories of retail spending, particularly the high ticket items such as automobiles, furniture, and electronics,” Carriera said.

Unemployment at the local, state, and national levels bottomed out in 2007 and since then has gone up considerably. Nationally, the unemployment rate hit 8.9 percent in April, at the state level it was 7.7 percent, and in Cochise County the rate was 6.6 percent.

The Arizona Department of Commerce estimate of the unemployment rate in Douglas was 10.1 percent for April. This is based on a model that pegs the city rate to the county rate based on data from Census 2000. The actual unemployment rate in Douglas is likely considerably lower than the ADOC estimates show, due to modeling errors.

In late 2008, the new ACT call center opened in the city creating more than 400 jobs by early 2009... Accounting for these jobs suggests the true unemployment rate in Douglas may be as low as 5 to 6 percent, Carriera said.

“In conclusion, it’s very likely that most of the recession is behind us. The consensus seems to be the national economy will begin to recover in the second half of this year. The recent stock market performance, oil prices, copper prices, home sales figures, manufacturing reports, and other data seem to support this assessment. The national government set out to spend quite a bit of money as part if its economic stimulus package, so we should begin to see the results of that in the second half of this year. Locally, it seems retail trade and commerce should begin to improve later this year—my guess is in the fourth quarter.  And again, the employment picture in Douglas is already looking quite good.”

though the official estimates from the Department of Commerce will continue to overstate the city’s unemployment rate.